Reilly owns and operates an accounting practice as a sole proprietorship. For tax reporting, Reilly uses the accrual method of accounting. Last year, Reilly prepared a tax return for a client and billed the client $600. The client did not pay and has recently disappeared. The reminder notices that Reilly’s secretary had sent to the client have been returned with no forwarding address. How should this bad debt be treated for income tax purposes?

During the current year, Hazel (a taxpayer), collected $600 interest on U.S. Treasury bills, $900 interest on Escambia County school bonds, and $200 from a state income tax refund (she itemized her deductions last year and deducted a total of $8,000 for state and local taxes). Hazel also received $400 in dividends from a U.S. company’s common stock. Her gross income from the above is:

Janie, a widow, elected to receive the proceeds of a $100,000 face value insurance policy on the life of her deceased husband in ten annual installments of $11,900 each including interest (beginning last year). In the current year, she received $11,900, which included $1,900 interest. Janie dies in December of the current year after collecting the current year’s payment. What is the amount subject to income tax on her final tax return?

Byron purchases 200 shares of stock for $8,000 on March 5. On March 5 of the following year, Byron sells all 200 shares for $9,500. Which of the following best describes the tax consequence of this transaction?

Last year, Nadia bought a condominium in Denver. She is now considering selling it and is unsure whether she qualifies for a partial exclusion of gain. Under which of the following circumstances would Nadia not qualify for even a partial exclusion?

Booma is age 62, single, and is a dependent of her daughter. During the current year, Booma received interest on a bank account of $3,500 and $2,300 from a part-time job. What is Booma’s taxable income?

Leona is 68 years old and single. What is the largest amount of adjusted gross income that Leona can have for 2026 without being required to file a tax return?

Lisa is a single taxpayer and a senior software engineer at Meridian Technologies, Inc. Three years ago, she was granted 2,000 incentive stock options (ISOs) when the stock was trading at $20 per share. The stock has appreciated significantly and is currently trading at $95 per share. In the current tax year, Lisa exercises all 2,000 options but does not sell any of the shares, intending to hold them for at least one year to qualify for long-term capital gains treatment. Lisa’s salary is $185,000. What amount, if any, must Lisa add to her regular taxable income when calculating AMTI for the current year?

Richard takes out a $200,000 loan to add a new room to an existing primary residence. The loan is secured by the home. How should this loan be classified for purposes of the mortgage interest deduction? 

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